Prepare for Higher Pump Prices This Spring

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Gasoline prices are going to keep ticking higher. The national average price of regular unleaded gas now stands at $3.33 per gallon, up a couple of pennies from a week ago, and almost a dollar from one year ago. And remember, this is the time of year when prices tend to bottom out, due to relatively low demand. Come spring, as more people hit the road for vacations, the national average price could hit $4, a level not seen since 2008. Diesel, now averaging $3.65 per gallon, is also rising, adding to overall inflation as it gets more expensive to ship goods by truck and train.

Behind high retail fuel prices is a rally in crude oil, which has taken benchmark West Texas Intermediate crude to about $85 per barrel. That’s well above the level WTI was trading at when COVID-19 crushed oil demand in early 2020. Now, global oil demand is rebounding faster than production can rise. What’s more, Europe is experiencing an energy crunch that has caused natural gas prices there to soar. That has a knock-on effect on oil prices, since some power plants in Europe burn oil when gas gets too expensive. And now, the threat of a Russian invasion of Ukraine is keeping markets on edge. War in eastern Europe could trigger sanctions on Russia’s huge oil production, further tightening an already tight global market. We see oil prices staying high, with WTI trading from $85 to $90 per barrel this spring. If the situation in Ukraine goes from bad to worse, prices could jump even higher.

Natural gas prices are elevated in the United States. But they seem unlikely to surge higher. Gas prices actually were higher this autumn, due to concerns that winter would start with insufficient gas stockpiled in underground storage. But mild weather allowed stored gas to build up, bringing the benchmark gas futures contract back to about $4 per million British thermal units, from its autumn high near $6. Now, even with cold weather across much of the heavily populated Northeast and Mid-Atlantic sending gas demand up, prices are holding fairly steady. Any new rally would probably require cold weather to stick around well into spring. Otherwise, we look for gas futures to hold close to $4 per MMBtu for now.